11 States Are On A Mission To Take Down A Major Consumer Watchdog

Eight more states have joined a lawsuit aimed at challenging the
constitutionality of parts of the Dodd-Frank Wall Street Reform
and Consumer Protection Act, including the creation of the
Consumer Financial Protection Bureau.

The CFPB was created in the wake of the financial crisis to
protect consumers from predatory, unfair and abusive financial
practices and has already taken action on many issues of concern,
some of which contributed directly to the financial crisis. If
the CFPB is ruled unconstitutional and dismantled, it is highly
likely all the consumer protections it enacted would be
dismantled along with it.

The suit originated in Texas, and was filed on behalf of a
Texas-based community bank named State National Bank of Big
Spring and two conservative political groups. It contends that
both Dodd-Frank and the CFPB give too much power to federal
officials, allowing unelected bureaucrats to "unilaterally
liquidate financial institutions in which the state invests
taxpayer dollars ... [therefore depriving states] of basic due
process rights and [placing] taxpayers' resources at
risk."

It was announced
on Wednesday that the state of Texas officially
joined the suit along with Alabama, Georgia, Kansas, Montana,
Nebraska, Ohio, and West Virginia. Oklahoma, South Carolina, and
Michigan were the first states to sign on. Just for good measure,
the suit also names Federal Reserve Chairman Ben
Bernanke as one of the defendants.

Ending Predatory Financial Practices

The CFPB's stated
mission is "to make markets for consumer financial
products and services work for Americans -- whether they are
applying for a mortgage, choosing among credit cards, or using
any number of other consumer financial products." In its short
lifespan, the agency already has a remarkable list of
accomplishments under its belt, including:

Helping to make credit card agreements easier to understand.

Helping to make financial-aid options easier for parents and
prospective college students to understand.

Focusing on oversight of consumer credit bureaus, to make
sure credit information is accurate, as well as quickly and
easily fixable.

But the best known and perhaps most important of the CFPB's
consumer-protection accomplishments is new mortgage-writing
guidelines that protect prospective homeowners from the kind of
predatory lending practiced in the years leading up to the
crash.

The new rules would incentivize banks to write mortgages
fairly and squarely -- offering them some measure of protection
from consumer lawsuits as long as they follow a set of
common-sense guidelines, which include checking such basic items
as current income, current employment status, current debt
obligations, credit history, and the projected ability of the
borrower to make his or her monthly mortgage
payment.

Believe It or Not, Everybody Wins

As crazy as it sounds, these kinds of underwriting basics
were ignored on a massive scale by many banks in the years
leading up to the financial crash. At the extreme end of the
predation spectrum, some consumers were on the receiving end of
no-income, no-job, no-asset loans (known in finance industry
slang as "NINJA loans") and got into homes they were never going
to be able to afford.

Such predatory home-lending practices fueled the housing
bubble that eventually crashed Wall Street and then the rest of
the economy when it burst. It, of course, also crashed an untold
number of personal finances along with it -- personal tragedies
people across the country are still recovering from.

If large parts of Dodd-Frank are ruled unconstitutional,
including the CFPB, Americans will be back to square one when it
comes to basic financial protections that we're already beginning
to take for granted. The banks were actually happy when the
above-mentioned home-lending reforms were agreed to: They got
protection from consumer lawsuits just for doing their due
diligence on loans, which of course would also be better for them
in the long run.

No bank wants bad loans on its books, and no consumer wants
or needs to get into a mortgage, student loan, or credit card
agreement that harms them in the short run and potentially the
economy in the long run. As rare as it is in our polarized
political world, with the Consumer Financial Protection Bureau,
everyone actually wins.